S.E.C. Adopts New Rules on Asset-Backed Securities and Credit Ratings

Mary Jo White is the chairwoman of the Securities and Exchange Commission.Credit Justin Lane/European Pressphoto Agency

Nearly six years after the financial crisis, regulators have voted to require more disclosure and impose new controls for two sectors of Wall Street that were at the heart of the collapse.

The Securities and Exchange Commission unanimously approved rules on Wednesday that would require issuers of asset-backed securities — complex investments based on mortgages, auto loans or other types of debt — to disclose more information about the underlying loans. The rules are meant to help investors better judge the quality of such securities.

At the same time, the S.E.C. tightened controls on credit rating agencies, whose overly optimistic ratings helped inflate the housing bubble in the years before the crisis. With two of the five commissioners casting dissenting votes, the agency adopted rules to help guard against conflicts of interest in the ratings business as well as to increase disclosure of the rating process.

“The reforms before us today will add critical protections for investors and strengthen our securities markets by targeting products, activities and practices that were at the center of the financial crisis,” said Mary Jo White, the S.E.C. chairwoman. “With these measures, investors will have powerful new tools for independently evaluating the quality of asset-backed securities and credit ratings.”

During the housing boom, Wall Street banks packaged mortgages into exotic investments that often earned top ratings despite containing significant amounts of subprime loans. Investors suffered severe losses in 2008 when the securities fell in value, touching off a wave of lawsuits and prompting regulators to vow to strengthen oversight of this market.

But the rules adopted on Monday, stemming from the 2010 Dodd-Frank financial overhaul, cover only part of the agency’s task. In the discussion of asset-backed securities, one commissioner, Luis A. Aguilar, said that “an important and overdue initiative” was the enactment of the risk-retention, or skin-in-the-game, rule that would “align the incentives of the securitizer with the investors.”

In addition, the rules on rating agencies drew forceful criticism from two of the commissioners. Among other issues, those rules aim to address a potential conflict inherent in the business model of rating agencies, which are paid by the issuers of the securities they rate, by prohibiting sales considerations from influencing them. The rules also require the firms like Moody’s Investors Service and Standard & Poor’s to have internal procedures for setting and revising their ratings. They will also have to increase disclosure of their accuracy.

Daniel M. Gallagher, a commissioner who cast a dissenting vote, said the effort to prevent marketing considerations and other factors from influencing the ratings was too vague, giving too much discretion to the ratings agencies. He said the final rules reflected “the last-minute imposition of ill-conceived and hastily drafted rule provisions.”

Still, Mr. Gallagher said he was pleased with the enhanced disclosure requirements in the rules for asset-backed securities, a sentiment that other commissioners shared.

“The rules in effect do for investors what food and drug labeling do for consumers — provide a list of ingredients,” Kara M. Stein, another commissioner, said.

Janet Tavakoli, a derivatives and structured finance consultant and longtime critic of the work of the credit rating agencies, said the heightened disclosure requirement about loan quality was a good move, but she said it should not have taken regulators this long to take action. Ms. Tavakoli also said she was concerned whether regulators would adequately enforce the requirement.

“If you are doing a credit rating, you have to understand the underlying credit,” she said. “This is important and good step in the right direction, but how will they enforce it?”

Matthew Goldstein contributed reporting.

A version of this article appears in print on 08/28/2014, on page B5 of the NewYork edition with the headline: Investor Protection.